Nov. 8 (Bloomberg) -- China Premier Li Keqiang said local
governments should stop directly investing in or setting up
companies “in principle,” according to comments released a day
before leaders gather to discuss economic policy.

Allowing local authorities to invest in companies or to
intervene in their operations can ‘easily’’ lead to monopolies
and market barriers, Li was cited as saying at a Nov. 1 meeting,
according to a statement posted on the central government’s
website today.

The remarks reflect Li’s broader campaign to reduce the
state role in the economy and come ahead of a Nov. 9-12 meeting
where the Communist Party’s central committee may unveil
sweeping economic reforms. The party is also seeking to rein in
borrowing by local governments through companies set up to build
infrastructure such as roads, bridges and sewers.

When Li took office in March, he pledged to open the
economy to market forces and strip power from the government.
That process will be “very painful and even feel like cutting
one’s wrist,” he said then.

Instead of trying to drive economic development, local
governments should act as policemen to ensure fair competition,
Li said at the meeting, which was convened to discuss changes to
the role of local governments.

The party gathering that starts tomorrow may introduce
measures to let domestic private investors enter industries now
dominated by state-owned companies, Deutsche Bank AG economist
Ma Jun wrote in an e-mail Oct. 31

Former Finance Minister Xiang Huaicheng said in April that
local government debt may exceed 20 trillion yuan ($3.3
trillion). China’s State Council ordered a national audit of
local government debt in July on concerns that some cities and
provinces may not be able to repay their borrowings. The results
haven’t been released.